Trademark Fraud: A Cross-Border Comparison

November 27, 2009

Canadian courts and the Trade-marks Opposition Board have so far refused to import the U.S. doctrine of fraud on the trade-marks office - even though the U.S. doctrine has recently moved closer to the Canadian standard.

The U.S. Court of Appeals held that a real intent to deceive is required, and overturned several decisions of the Trademark Trial and Appeal Board (TTAB) in which the pendulum had swung too far the other way.

Since evidence of a "knowing intent to deceive" is now required in the U.S., it has become harder to invalidate applications and registrations there. It must be shown that a false material representation was made "with the intent to deceive" the office. This has raised the standard of what constitutes fraud on the U.S. Trademarks Office.

Canadian trade-mark and patent applicants have a duty of candour and good faith to the respective trade-mark and patent offices. This duty arises because the offices often rely on the statements made by the applicant in granting an intellectual property monopoly. Therefore, where a false material representation has been made with the intent to deceive the office, the resulting registration can and should be invalidated in order to provide an incentive to tell the truth.

Although there are many ways to invalidate a registration under the Canadian Trade-marks Act, there is no express provision in the Act for when misstatements in trade-mark registrations become grounds for invalidating the registration. In General Motors of Canada v. Décarie Motors Inc., the Federal Court of Appeal held that a trade-mark registration could be invalidated by two types of misstatements:

(i) fraudulent, intentional misstatements; and

(ii) innocent misstatements that are material when without them, the s. 12 barriers to registration would become insurmountable.

In Parfums de Coeur, Ltd. v. Asta, the Federal Court confirmed the Canadian treatment of "inadvertently" false declarations of use: innocent misstatements will not be sufficient to make a mark unregistrable. In confirming this position, the court distanced itself from the U.S. Patent and Trademark Office, which had until recently taken the view that a material misstatement in the trade-mark process renders the resulting registration void, whether intentional or not.

Justice Phelan noted in Parfums de Coeur when refusing to import the U.S. doctrine of fraud on the trade-marks office, "while there is something initially attractive in the notion that a material misstatement in the trade-mark process renders the monopoly granted in the registration void, Parliament has not embraced that principle and, absent an amendment to the Trade-marks Act, this Court will not do so."

Justice Phelan found that although the declaration of use had certainly been made erroneously, such a mistake was either made in good faith or in negligence and thus an opportunity should be provided to amend the registration. The then-applicable U.S. fraud principle was found by the court to have "draconian results for even an innocent mistake," and thus not aligned with the more tolerant Canadian law.

Usually, the intent of a party plays a critical role in a finding of fraud. However, until very recently, U.S. trade-mark jurisprudence allowed for findings for fraud where the applicant or registrant "knew or should have known" that the statements were false or misleading. Consequently, any material misstatements made to the U.S. Trademark Office during prosecution or renewal, regardless of intent, constituted fraud and rendered the registration subject to cancellation because the party "should have known" that such statements were false or misleading.

Courts did not consider the subjective intent of the party - rather, it was only the objective manifestation of the party's intent that was determinative in a finding of fraud before the TTAB. Consequently, trade-mark practice became very risky in the U.S.: there was the threat of malpractice and prejudice to clients on the prosecution end, and fraud claims proliferated and were used both defensively and offensively in trade-mark disputes.

In a much-anticipated decision released August 31, 2009, the Court of Appeals for the Federal Circuit held in Re Bose Corporation that a trade-mark is obtained fraudulently only if the applicant or registrant "knowingly makes a false misrepresentation with the intent to deceive." The Court of Appeals clarified that the standard for fraud requires a "wilful intent to deceive" on the part of the applicant or registrant, and that proof of subjective intent must be clearly established by evidence. The establishment of a higher wilful intent standard will have a significant impact on the future of U.S. trade-mark practice. Indeed, it may be argued that the previous lower standard of fraud had a chilling effect on owners whose registrations may have previously been at risk because of statements that could have potentially invalidated the registrations. These registrants may now be more willing to assert their registrations.

The realignment of the U.S. practice now more closely accords with Canadian practice.

Henry Lue and Sangeetha Punniyamoorthy practise intellectual property law and litigation at Dimock Stratton LLP in Toronto. Contact Henry Lue or Sangeetha Punniyamoorthy today.


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